With Foursquare Deal, Microsoft Aims for Supremacy in Hyper-Local Search

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With Foursquare Deal, Microsoft Aims for Supremacy in Hyper-Local Search

The Microsoft campus in Washington.

Photo: Jim Merithew/WIRED

Microsoft's coronation of new CEO Satya Nadella grabbed most of the headlines on Tuesday. But the news overshadowed a second announcement from the company, one that gives an early indication of how the Nadella regime plans to compete with the likes of Google and Facebook for the future of the internet.

The tech giant has signed an extensive partnership with Foursquare, maker of the seminal mobile app that lets users broadcast their location across the internet, while also giving them site-specific tips and deals. The deal gives Microsoft access to Foursquare users' physical movements and preferences among real-world shops, restaurants, bars, and the like. Using this data, the company can personalize search results – and better target ads – on its Bing search engine.

But that's only the beginning.

The arrangement is Microsoft's way of matching recent efforts by Google, Facebook, and others to harness location and use it to enhance web and mobile services. As the world grows increasingly mobile in its computing – and advertisers grow increasingly demanding about how they target prospects – the giants of the net are intent on tailing people around town. Google captures location through its Android phones and various mobile apps, while Facebook includes a Foursquare-like service within its ubiquitous social network. With this deal, Microsoft gets extensive access to Foursquare's brand new tracking system – which actively monitors users' locations, instead of requiring them to manually check in – as well as its massive database of location information.

"They're a very large company with a fantastic footprint, especially in the search space," Holger Luedorf, Foursquare's head of business development, says of Microsoft. "It became very clear we had a shared vision of where contextual services lead to in the next three to four years."

Holger Luedorf.

Photo: Ariel Zambelich/WIRED

$15 Million and Then Some
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In exchange for access to Foursquare's data, Microsoft will invest $15 million in Foursquare, adding to the $35 million funding round the startup announced in December. Perhaps more significantly, the software giant will also make regular payments to Foursquare that the startup characterizes as a "substantial addition" to its revenue stream. This will go "beyond an advertising share," says Luedorf.

Foursquare sees the deal as a template for future arrangements with other companies. It already has partnerships with prominent operations like the Twitter video service Vine, the Yahoo photo platform Flickr, and the collage service Pinterest, but according to Foursquare, the Microsoft deal goes much deeper. Most notably, no one else has access to the new tracking system.

"We are basically making available proprietary technology that is not publicly available," Luedorf says. Foursquare is "providing rich data," he explains, straight into Microsoft devices. But the deal is not exclusive, which means similar agreements may follow.

The deal also gives Microsoft entree into the relatively lucrative location-based advertising market. "I'm not surprised by Microsoft's interest," says Matt Murphy, a general partner specializing in app investments at VC powerhouse Kleiner Perkins. "[Ad rates] are much higher in local, so I'm sure they are trying to get more data around which locations are where and who to advertise to around those."

Google offers location-based ads that target users of its mobile platform Android, and it recently spent a reported $1.1 billion on Waze, a location tracking system for dodging traffic. Meanwhile, Apple offers similar ads on iPhones and iPads, and Facebook is trying to entice more people to use its mobile check-in service, in part by tying check-ins to complimentary Wi-Fi service in certain cafes.

In other words, Nadella and company are trying to make up lost ground. "Microsoft is trying to figure entry points into the mobile experience, and they're starting from where Google and Facebook started three years ago," says Simon Khalaf, the CEO of Flurry, an outfit that delivers ads to mobile apps on behalf of clients like Starbucks and Viacom. "There is a lot of catch up the new dude needs to do."

Foursquare to the Fore
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But there is good reason for the company to choose Foursquare. The startup's big advantage over other location tools is that the people who use the service are fundamentally interested in having their location tracked. Foursquare is, by definition, a service for sharing that sort of data. No one is stumbling into location tracking while using some other, larger tool. Foursquare's symbiotic relationship with its users is underscored by its transition from the check-in model to one in which users receive "passive notifications," recommendations and commercial offers pushed onto their phones as they roam around a city.

That said, Foursquare's cozy new relationship with Microsoft could strain its relationship with users. On the positive side, users may realize that their Foursquare data will meaningfully improve the search results they get from Bing or enhance their use of mobile Windows devices. On the other hand, many people are still wary of companies sharing sensitive personal information (like physical movements) with third parties (like Microsoft).

Luedorf declines to explain how Foursquare is safeguarding the data shared with Microsoft – beyond saying that the company is following the same privacy guidelines that apply to its owned and operated service. "We are obviously just as sensitive to the privacy of our users on a third-party service like Microsoft as we would be on our own service," he says.

But one thing is for sure. Foursquare is back on the map. As Facebook built its own location service and Google pushed into the same game, many questioned whether the New York startup would survive. But its Microsoft deal shows that reports of its death were greatly exaggerated. In fact, it's at the heart of a movement posed to remake the net.